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Rupee: Why there is a ray of optimism

Last updated on: January 16, 2014 15:26 IST

Indian flagSentiment on most emerging Asian currencies deteriorated in the last two weeks with short positions in the Singapore dollar, the Philippine peso and the Taiwan dollar at a five-month high, a Reuters poll showed on Thursday.

The Indian rupee, however, saw the largest bullish bets in one year as worries about inflation eased.

Bearish bets on the Singapore dollar and the peso rose to their largest since late August, according to the bi-weekly survey of 14 analysts.

The city-state's currency hit a near five-month low to the US dollar as local speculators and funds sold it on signs of a slowing economy.

The peso fell to its weakest since September 2010 on stop-loss selling after breaks in chart and psychological supports and as offshore funds sold it.

Sentiment on the Taiwan dollar turned bearish with its short positions at the largest level since late August.

The Taiwan central bank was spotted intervening to prevent the island's currency from outperforming the South Korean won, according to local traders.

Long positions in the won nearly halved to the lowest since late August, when sentiment on the won was slightly bearish.

Offshore funds cut optimistic bets on the currency as the foreign exchange authorities kept warning against further appreciation in the second-best performing emerging Asian currency in 2013.

The outlook for emerging Asian currencies remained dark as a solid US economic recovery bolstered expectations that the Federal Reserve will continue to scale back its bond-buying programme giving a boost

to the dollar.

That, despite a report in December showing jobs growth was the lowest in nearly three years and well short of market expectations, prompting some caution over the health of the world's largest economy.

December retail sales data, however, rose with a core spending gauge posting a big jump and reviving optimism on the US economy.

In addition, Fed policymakers supported the central bank's plan to wind down the stimulus.

Despite expectations of the Fed's policy shift, sentiment on some emerging Asian currencies improved.

The rupee's long positions rose to the largest level since late January 2013 as India's headline inflation eased to a five-month low in December.

Bearish bets on the Thai baht fell to the lowest level since late November as anti-government protests have so far remained peaceful, prompting investors to cover short positions.

The Indonesian rupiah's short positions hit the lowest since early November as the government diluted a controversial mineral export ban, easing worries about the country's current account deficit.

The Reuters survey is focused on what analysts believe are the current market positions in nine Asian emerging market currencies: Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long for US dollars.

The figures included positions held through non-deliverable forwards.

(Additional reporting by Sumanta Dey in Bengaluru)

Jongwoo Cheon in Singapore
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